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The effects of foreign and government ownership on bank lending behavior during a crisis in Central and Eastern Europe

  • Allen, Franklin
  • Jackowicz, Krzysztof
  • Kowalewski, Oskar

We examine whether foreign-owned and government-owned banks in Central and Eastern Europe reacted differently during a domestic systematic banking crisis and the global financial crisis of 2008. Our panel dataset comprises data on more than 400 banks for the period 1994- 2010. Our analysis shows that foreign banks provided credit during domestic banking crises in host countries, while government-owned banks contracted. In contrast, foreign-owned banks reduced their credit base during the global financial crisis, while government-owned banks expanded. Consequently, our results show that foreign-owned banks may contribute to financial stability during domestic crisis episodes, but also increase the risk of importing instability from abroad during a crisis in their home markets. However, government-owned banks may substitute for foreign-owned banks and hinder the transmission of international shocks. Thus, our results indicate that a mixed banking sector consisting of foreign-owned and government-owned banks is most advisable.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 48059.

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Date of creation: 30 Jun 2013
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Handle: RePEc:pra:mprapa:48059
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